Strides Pharma Shares Surge to Record High on Strong Brokerage Outlook

Shares of Strides Pharma Science Limited experienced a significant surge, climbing 10% to reach a record high of ₹1,025 on Monday, November 3. This marks the fourth consecutive session of gains, with the stock rallying an impressive 26% over the past four trading days and nearly sevenfold from its 2023 lows. Trading volumes were exceptionally high, with approximately 23 lakh shares changing hands, vastly exceeding the 30-day average of 80,000 shares, indicating strong investor interest.

Following its recent 'ex-OneSource' transaction, Strides Pharma is now focused exclusively on its generic pharmaceuticals business, positioning it as a pure-play entity in the sector. Brokerage firm DAM Capital has maintained its 'Buy' rating on the stock, setting a price target of ₹1,250. This target implies a potential upside of 34% from the current levels.

DAM Capital highlighted that Strides Pharma's strategic focus on profitability and cash generation over topline growth, coupled with strong operational execution, sets it apart from its Indian generic peers. This approach has laid a strong foundation for sustainable long-term growth. The brokerage further noted that the company's investments in areas such as controlled substances, nasal sprays, and transdermal patches are expected to enhance its long-term growth visibility.

Projections indicate a steady scaling up of operating cash flow (OCF). With limited capital expenditure anticipated, Strides could generate substantial free cash flow (FCF) of ₹1,300 crore between FY25 and FY27. This financial strength is expected to facilitate a significant reduction in the company's leverage and potentially lead to cash returns for shareholders. DAM Capital estimates revenue and EBITDA compound annual growth rates (CAGR) of 12% and 17%, respectively, between FY25 and FY27, primarily driven by the US and other regulated markets.

The brokerage considers Strides Pharma attractively valued at 14 times estimated FY27 earnings per share (EPS), trading at a notable discount compared to developed-market generic peers. DAM Capital anticipates a potential re-rating of the stock as the company continues to execute its growth strategy effectively.

These positive developments are underpinned by strong recent financial performance. In its September quarter results, Strides Pharma reported a net profit of ₹131.5 crore, an 82% year-on-year increase from ₹72.2 crore. Revenue grew by 4.6% year-on-year to ₹1,221 crore, and EBITDA increased by 25.4% to ₹232 crore. The company also saw improvements in its profitability metrics, with EBITDA margin expanding by over 300 basis points to 19% and gross margin improving by 500 basis points to 57.8%.

The stock continues to perform well year-to-date, with current trading showing it is up over 40%.

Impact This news has a significant positive impact on Strides Pharma Science Limited and its investors. The strong stock performance, coupled with analyst upgrades and positive future projections, indicates potential for further gains. The company's strategic focus and financial health suggest robust future prospects, making it an attractive proposition for investors in the pharmaceutical sector. Impact Rating: 9/10

Definitions of Difficult Terms: * **ex-OneSource**: This refers to a corporate action where the company has divested certain business units or assets, allowing it to focus more narrowly on its core operations. In this case, Strides Pharma is now solely focused on its pharmaceuticals business. * **Pure-play generic pharmaceuticals business**: A company that exclusively operates in the market for generic drugs, which are identical to branded drugs in dosage form, safety, strength, route of administration, quality, performance characteristics, and intended use. * **Controlled substances**: Medications that are regulated by governments due to their potential for abuse or addiction. Their manufacturing, distribution, and possession are subject to strict laws. * **Nasal sprays**: A method of delivering medication directly into the nasal passages for local or systemic effects. * **Transdermal patches**: Adhesive patches placed on the skin to deliver a specific dose of medication through the skin and into the bloodstream over a period of time. * **Operating Cash Flow (OCF)**: The cash generated from a company's normal business operations during a specific period. It is a key indicator of a company's financial health and its ability to fund operations without external financing. * **Free Cash Flow (FCF)**: The cash a company generates after accounting for cash outflows to support operations and capital expenditures. It represents the cash available to the company for debt repayment, dividends, or reinvestment. * **Leverage**: The extent to which a company uses debt to finance its assets. High leverage means a company has borrowed a significant amount of money, which can increase financial risk. * **EBITDA**: Stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of a company's operating performance, indicating its profitability before accounting for certain expenses. * **CAGR (Compound Annual Growth Rate)**: The average annual growth rate of an investment over a specified period of time longer than one year. * **Return on Equity (ROE)**: A measure of profitability that calculates how effectively a company is using shareholder investments to generate profits. * **Adjusted Return on Capital Employed (ROCE)**: A profitability ratio that measures how efficiently a company is using its capital to generate profits. "Adjusted" implies that certain items may have been excluded or modified for a more accurate assessment. * **Earnings Per Share (EPS)**: The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability.